Brookfield Expands Infrastructure Fund With Triton Acquisition

Brookfield Infrastructure Partners ($BIP) has agreed to acquire Triton International ($TRTN), the world's largest lessor of intermodal freight containers, in a cash and stock deal worth $13.3 billion. By acquiring Triton, BIP is solidifying its leading infrastructure conglomerate position even further, as its Transport segment operates an impressive portfolio of rail lines, toll roads, terminals and export facilities.

Triton common shareholders will receive $85 per share in the cash-stock deal, including $68.50 in cash and $16.50 in Brookfield class A shares, representing a 35% premium to Triton's closing share price on April 11.

BIP CEO Sam Pollock commented on the acquisition: "Triton is an attractive business with highly contracted and stable cash flows, strong margins, and a track record of value creation."

The supply chain turmoil over the last few years created a tailwind for Triton - as lengthened shipping times required more containers, and the company grew its container fleet by over a million, exceeding 7 million twenty-foot equivalent units (TEUs).

BIP is a diversified infrastructure player that owns and operates pipelines, energy terminals, transmission lines, data infrastructure, and more. The company aims to maintain Triton's existing investment-grade capital structure, uphold the highest operating and customer service standards for the benefit of Triton's customers and stakeholders, and help grow the business, aided by BIP’s substantial access to long-term private capital.

The high cash portion of the deal has advantages for both parties, with BIP having sufficient cash on hand and access to debt markets at favorable terms.

“This transaction provides Brookfield Infrastructure with a high going-in cash yield, strong downside protection, and a platform for growth in the transportation and logistics sector,” Pollock added, indicating the desire to strengthen BIP’s Transport segment that, as of FY 2022, attributed for 31% of company’s portfolio.

As the share-based portion of the deal is less than 20%, thus current BIP investors don’t have to worry about dilution. Meanwhile, Triton's shareholders benefit from the high cash portion of the deal as well since it will be easy for them to reallocate capital where they see the best value.

"We believe this transaction provides an excellent outcome for all of Triton's stakeholders," stated Triton’s CEO Brian M. Sondey"

Brookfield Infrastructure Partners has a strong track record of acquiring and building outstanding businesses within segments, with high margins, long-term contractually- and inflation-protected cash flows, and substantial capital backlogs securing further growth.

The company has been creative in acquiring and building these businesses, often keeping them longer than required for a profitable quick exit typical for private equity and operating them as strategic players in their chosen segments.

However, BIP's further growth is squeezed by growing incentive distributions and higher interest rates. The company is unlikely to increase its distributions by more than 6%, and its growing 110% debt-to-equity ratio doesn’t impress. Despite these challenges, the acquisition of Triton International represents a mutually beneficial deal for both companies, leveraging their strengths and synergies to create value for shareholders.

Upon closing the transaction, Triton’s common shares will be delisted from the New York Stock Exchange. However, Triton sold multiple series of preferred shares, yielding as much as 8.5% for the Series A. Those shares will remain outstanding, but some investors fear Brookfield might stop paying the preferred dividend.

Still, Andrew Kohl, Director of Triton’s Investor Relations division, claims Brookfield cannot access the funds without paying out the dividend first, providing some peace of mind for the investors.